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Thursday, March 18, 2010

Thieves in their own corporate treasuries: how to keep the foxes from guarding the foxes in the henhouse? by gimleteye

Last week, Federal Reserve Bank of Dallas President Richard Fisher was speaking at the Dallas Fed's conference, "The Euro and the Dollar In The Crisis and Beyond." According to Dow Jones News Service, "He did not mention specifics on monetary policy, and made no mention of key interest rates, during his initial remarks." But he did, as other governing board presidents have tried to do, address the cause of the economic crisis I call a time release depression. "Helping to trigger the crisis was an ignorance of basic human nature, Fisher said. Lenders "forgot the basic rules of credit," making loans to people with little regard for their ability to repay, he said. "We deceived ourselves to think that we could somehow avoid the way people are."

Fisher's comments echo the regret now expressed by former Fed chair Alan Greenspan who is 'chagrined' that his faith in markets to self-correct proved to be 100 percent wrong during an unprecedented financial crisis in corporate America, triggered by historic low interest rates and a political willingness to allow the nation's top corporate executives to act as thieves in their own corporate treasuries. How self-enrichment became the de facto standard for corporate America and especially through the passive assent of corporate boards serving America's largest corporations is the point of Gillespie and Zwieg's "Money for Nothing: How the Failure of Corporate Boards is Ruining American Business and Costing Us Trillions."

One of the great tragedies of the current turmoil over health care is the extent to which this debate-- and the rabble rousing that amounts to an uncontrollable fire in the halls of Congress -- camoflagues the rotted core of the health care problem-- vast profits accruing to individual corporate officers and chief executives of large insurance companies under a system of rewards and prerequisites of finance that is scarcely touched by regulation at all. It is not, as its defenders pretend, a 'free market': it is 'money for nothing'."Greatly exacerbating the problem of flawed governance is the vast support system that has evolved to offer services--from expert analysis of account books, to the deciphering of legalese and various forms of cover--to CEO's and board, for considerable costs. This almost diabolically complex and often interconnected network of hundreds of thousands includes: compensation consultants; proxy vote advisors; ratings agencies that evaluate companies' governance; agencies that rate company debt; directors' and officers' insurers... a legion of lobbyists; and of course huge armies of lawyers, accountants, and investment bankers... " (Page 209)

To understand the true scope and scale of the disaster, the Federal Reserve chiefs would have to come down to local government councils, like the Miami-Dade County Commission, and perform their own forensic analysis how rezoning in farmland and wetlands provided the grist for the mill connecting platted subdivisions to mortgage backed securities, and how the campaign finance system supporting unreformable majorities-- like the county commission-- was constructed to be an enforcement racket (worthy of RICO prosecution, in my opinion) so votes would be reliably aligned to speed zoning changes and building permits forward irrespective of regulatory thresholds to support a political orthodoxy that operates even today under the banner of conservative values.

"Consider the profits made by some of the ratings agencies," write the authors of 'Money for Nothing'. "When the two companies that rate almost all debt securities, Moody's and Standard & Poor's, report operating margins that are close to 50 percent and several times that of Exxon-Mobil, it is reasonable to conclude that customers have been paying too much for their services. Moody's, in fact, had the highest profit ratio of any company in the S&P 500 for five years in a row. In 2007, Moody's earned a pretax profit of $1.1 billion on revenue of $2.25 billion, a ration that Cali cocaine dealers might envy."

In Dallas, Fisher warned of "little growths, little cancers", suggesting that the Federal Reserve needs tools to cut out the disease but so far there is nothing in Congress-- absorbed in misdirection over the health care crisis-- that shows any willingness to diagnose the systemic illness afflicting American business: a culture of corruption waiting for fresh capital and renewed consumer demand to do it all over again.

3 comments:

CATO
said...

Audit the Fed,Having a quasi governmental org control the currency is not part of capitalism.Markets aren't perfect, neitther are people (except for maybe Gimspierre)but the depth of this and other crisis are worsened by the Feds monetary policies and government complicity. See the geat recession of 1920-1921 the actions taken and results as opposed to Hoover/Roosevelt actions in 29

Our money system is unsustainable left to its own devices. Money comes into existence as credit. Every dollar in circulation is borrowed into creation, but not the interest. Therefore, the money supply must continue to increase to provide funds necessary for interest payments, as the principal is extinguished when paid back, the same way it was created when it was borrowed into existence.

The expansion of the money supply follows an exponential curve. Eventually, the curve turns towards, and will left to it's own devices, become vertical. This is unsustainable.

The Fed must then shrink the money supply to put us back on the flat part of the money supply curve. They do this by selling US government securities to banks licensed to do receive them, and extinguish the cash they are paid for those securities. As that money is removed from the economy, credit tightens and we undergo a recession or depression.

This is not rocket science. The banks will lend if they are below their reserve ratios. When money is pulled out the economy, it has the effect of making the remaining money more precious and therefore more expensive, and removes reserves from the system, making it more difficult for banks to lend.

The Fed has absolute day to day control over the size of the money supply at the open market desk of the NY Fed by buying or selling government securities. Recessions and depressions are not accidents. They are purposefully created to control the money supply.

The fact that the stockholders of the NY Fed are the largest banks in the US, many of whom have ties to Great Britain; and the fact that they profit immeasureably by buying up undervalued stocks during the downturns the NY Fed creates is purely coincidental. And if you belive that...

Congress abdicated (unconstitutionally in my opinion) its constitutional duty, and greatest creative prerogative to "coin money and regulate the value thereof" (debt free I might add) in 1913 with the passage of the Federal Reserve Act. That act privatized control of our nation's money supply, to our continuing great detriment. It is akin to Congress passing a law today that authorizes General Motors to declare war for the United States.

Quotes hall of fame - worth another look:

Jonathon Dunlop of Australia about the Miami Airport:"This is the most disorganized shambles of an airport that exists on this earth.''April 01, 2007 Eye on Miami Comment on Post__________________________________On "Colony Collapse Disorder":Anonymous said...I say lets wait till the last tree is going to be cut down, the last bit of oil used, the last lowland coastal areas flooded before we make any rash decisions that might effect the economy.April 21, 2007 Eye on Miami Comment_________________________________On Bee “Colony Collapse Disorder” being blamed on cell phones:Anonymous said...Hmmm. What are bees doing with cell phones, anyhow?April 20, 2007 Eye on Miami Comment_________________________________On South Florida Water Supply:Ron Littlepage said...Unfortunately, we know who would win when it comes to allowing development to run amok and it's not the wildlife.April 20, 2007 Eye on Miami Comment Post_________________________________Lesley Blackner said:In Florida, the sad reality is that government exists to serve the development machine, not the citizenry. That's why it's proper to say that in Florida we have government of the developer, by the developer and for the developer.April 22, 2007 Eye on Miami Post_________________________________On City of Miami and Miami Dade County giving $1,000,000 each to Jorge Perez’s Related Group (The Group's 2005 revenues were $3.25 billion.):"It makes as much sense as me donating half my paycheck to Warren Buffett.”May 6, 2007 Miami Herald Columnist Ana Menendez_________________________________On the FCAT Test:"'Florida is a serial mis-user of test scores.''Bob Schaeffer, director for Massachusetts-based FairTest.May 25, 2007 Miami Herald_________________________________Clifford Schulman (Greenberg Traurig Lobbyist):"This is the first time in 33 years that any one has accused me of fraud." June 28, 2007 Miami HeraldI say: hmm.__________________________________Max Rameau, Homeless Activist:"I respect Ron Book for his work with the Homeless Trust, but the Liberty City community and others have given broad support to this idea. I don't know that a big-time millionaire lobbyist can tell us what is best for Liberty City and the black community.'' July 28, 2007 Miami Herald__________________________________"After years of mismanagement under a board of political appointees and neighborhood activists, Miami-Dade County administrators have proposed a new way to run the troubled empowerment zone program. The plan: Bring in new political appointees and neighborhood activists."November 6, 2007 Miami Herald: Reporter Scott Hiaasen______________________________________"Saying "Greater Everglades" and "Northern Everglades" is not saying Everglades -- other places are deserving of being protected too, but there is only one Everglades. The main thing is to keep the 'Main Thing' the main thing -- which, lately, has not been the main thing." Bob Mooney - on Listserve "Everglades Commons"________________________________________"Does anyone in their right mind believe that Florida could conduct postal balloting without a major screw-up or scandal? Heavens, no! The whole country is keenly aware that our state is a sump hole of incompetence and corruption."Carl Hiaasen - March 16, 2008 Miami Herald_______________________________________On the Charter Review: "Commissioners want us to vote on their own pet changes, ideas the review team explicitly rejected. And, they're throwing their blatantly self-serving ballot questions at us at the same time. What a slap in the face to the charter review team — and to all of us!" Michael Lewis of Miami Today - April 10, 2008______________________________________On the Miami Dade County Commission:''Unfortunately, this is a commission that would build a cyanide factory next to a playground if you hired the right 12 lobbyists,'' Miami Lakes Councilman Michael Pizzi - May 14, 2008______________________________________"The days where we’re just building sprawl forever, those days are over. I think that Republicans, Democrats, everybody recognizes that that’s not a smart way to build communities." President Barack Obama in Fort Meyers - February 10, 2009______________________________________"So."Dick Cheney's response when told that two thirds of Americans did not support the war in Iraq. - Time Magazine 2008______________________________________"It seems like a bad idea can always find a home in the Florida Legislature." - Howard Simon - Executive Director of Florida ACLU - March 24, 2010

______________________________________Complete this sentence: South Florida really needs a..."Regional plan for controlled growth (before it becomes a concrete jungle similar to Houston), and a completely new set of elected officials that make decisions based on what's good for the future of South Florida instead of what's good for their wallets. - Jack McCabe, Real Estate expert who predicted the housing boom's end. - August 29, 2011 Miami Herald